Shareholder Buy-Sell Agreements and Restrictive Covenants Are a Key Part of All Employment Contracts

October 28th, 2011

By Fredrick P. Niemann, Esq., a NJ Shareholder Dispute Attorney

 
Shareholder’s agreements should be an essential part of every small corporation’s structure in New Jersey. These agreements outline every aspect of  corporate government and shareholder ties to the business, including ownership and voting rights, control and management of the corporation, methods of resolving disputes, and two key provisions known as the buy-sell agreement and the restrictive covenant.

Buy-sell provisions and restrictive covenants are both integral parts of a quality shareholders agreement, particularly in smaller businesses with fewer shareholders. Smaller corporations often elect to establish ownership via shares in the business. For example, a small corporation with four co-owners elects to establish that each member owns 25 shares out of 100, thus 25% of the business. The shareholders agreement is an agreement between all of the shareholders in the corporation and will serve as the main document that Courts will look to whenever a dispute arises.

Shareholders agreements can be simple or complex and everyone is unique to the corporation it is written for. While many shareholders today are knowledgeable enough to make these agreements, they often are created without the assistance of a New Jersey Shareholders Attorney, thus lacking key components that leave many of the shareholders vulnerable. The buy-sell agreement and restrictive covenant provisions are two of these key components.

A buy-sell agreement dictates what will happen to the shares of a shareholder who wishes to leave the company. Since a shareholder who wishes to leave must sell their shares, a dispute often arises as to who they are selling their shares to and what price they are being sold for. Often the departing shareholder will want to sell shares to the highest bidder. This may be someone that the remaining shareholders do not want to be in business with. Also, if the corporation itself or the remaining shareholders are “buying out” the departing shareholder, the departing shareholder often thinks the shares are worth more than the remaining shareholders do. Fortunately, a typical buy-sell provision settles these disputes beforehand, stating who will buy the shares and the price they will be bought at when a departing member leaves the corporation. If any debate arises as a shareholder is leaving, the Courts will simply enforce the shareholders agreement and the buy-sell provision.

As for restrictive covenants, these are most useful for smaller corporations that licensed professions and professions involving particularized skills, such as doctors, attorneys, scientists, etc. A restrictive covenant lays out an area around the business where a departing member is forbidden from working, whether it is with another rival corporation or in their own practice. As long as they are reasonable in space and time, Courts will uphold restrictive covenants. These are useful to prevent a shareholder from departing and stealing clients from the remaining shareholders.

Shareholder agreements are complicated and should involve many different aspects that the normal shareholder often does not think of. Always consult a shareholders attorney before signing such an agreement. Please contact Fredrick P. Niemann, Esq., a NJ Shareholders attorney, today toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com.  For further information, go to http://www.youtube.com/user/NJBusinessLaw#p/search/0/pKIalQAdprY to learn more.

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ESTATE AND GIFT TAX RETURNS: WHAT ARE THE REQUIREMENTS: AVOIDING MISTAKES

October 28th, 2011

By Fredrick P. Niemann, Esq. a New Jersey Estate Administration and Probate Lawyer
The Requirement of Filing Federal Gift Tax Returns – Under the tax code the general rules applicable to income tax returns apply to annual gift tax returns.  That is, a 3-year statute of limitations applies to the initiation of an audit based on the value of the gift.  The IRS has issued regulations describing substantiation requirements to ensure the protection of the statute of limitations for gift purposes. The IRS can challenge the substantiation or appraisal information on gift tax returns many years after the expiration of the statute of limitations under certain cases, mainly based on fraud.  The IRS may challenge the gift value based on the adequacy of the substantiation provided with the initial return and will most likely occur when the donor’s estate is audited.  Our recommendation at this time is that all records, such as valuation reports, bank records, and any other items substantiating a gift tax return, should be kept until the donor’s estate tax return is settled.

New Jersey and Federal Estate Tax Returns – The federal statute of limitations is, again, 3 years from the date the return is filed.  However, in many cases, the federal estate tax return is extended by 5 months beyond the normal due date of 9 months following the date of the decedent’s income tax returns as long as the estate is open.  These income tax returns will also have a 3-year statute of limitations.  A good rule of thumb is to keep the estate records for 5 years after the decedent’s death or until a final closing agreement is reached with the IRS, if later.

If you have any questions regarding gift taxes, contact Fredrick P. Niemann, Esq. toll free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com.  He will be happy to assist you.

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Can New Jersey Subject Estate Asset to Bulk Transfer Law?

October 28th, 2011

By Fredrick P. Niemann, Esq., a New Jersey Estate Administration and Probate Attorney
      
Here’s an interesting post I recently read:

The executor of a New Jersey Estate is selling a single family home owned and occupied by the decedent until she died.  The home has never been used in any way as a business.  The executor is selling the house at a price far below the value reported to the New Jersey inheritance tax bureau.  The Bulk Sales section and the taxation section of the NJ Dept. of the Treasury are taking the position that the house is a business sale even though New Jersey regulations exempt withholding tax for a New Jersey based estate. 

My response starts with a question.  Was the property ever used for rental to others?  The Dept. of Revenue takes the position that if so, then the owner was a landlord in the business of renting property, so that the sale of that business’s asset (the property) is subject to the Bulk Sale requirements (notice and escrow, etc.)   Another example of greedy New Jersey taxing anything it can think of.

If you have any questions regarding New Jersey Bulk Sale Law, please contact Fredrick P. Niemann, Esq. today. He can be reached at toll free 1-888-800-7442 or by email at fneimann@hnlawfirm.com. Mr. Niemann will be happy to meet with you to answer any questions you may have.

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An Employment Contracts Is Essential To Your Rights As An Employee In New Jersey

October 21st, 2011

By Fredrick P. Niemann, Esq., a NJ Employment Law Attorney

 
Many employees throughout the state of New Jersey are unaware as to what exactly their employment contracts say. When they are hired and given the contract to sign, many individuals simply glance over the document and then sign their name on the dotted line.  Some simply turn to the last page and sign. Either way, many employees today are unaware as to the implications this document can have on their future. It is important to read and understand every single part of your employment contract, since your signature effectively promises that you will abide by all of the terms included throughout it.

For those that are unaware with New Jersey law pertaining to contracts, a contract is considered a legally binding document. This means that the law binds the parties to the terms of the agreement. If there is a dispute between an employer and employee related to an issue that is addressed in the employment contract, the Courts will first look to the contract to see what the parties agreed to. By signing the document, both the employer and employee certify that they agree to the terms contained within. It does not matter if one of the parties did not read the employment contract. If you signed the document, the Courts will hold you to its terms. “I did not read the contract” is NOT a defense that will be considered by the Courts.

As mentioned earlier, employment contracts often have intended results for either an employer or employee who did not read the contract or was not familiar with it’s terms when they signed the contract. In a recent NJ Court case involving a doctor leaving her practice with other doctors, the Court upheld the terms of the employment contract over the objection of the remaining doctors in the practice. The departing doctor wished to no longer work with the other doctors in the practice and wanted to leave the business. However, a dispute arose as to the value of the shares of the departing doctor and whether the remaining doctors would be forced to buy them. The Court looked no further than the employment contract between the parties, which required the remaining partners to buy all departing doctors shares in the business for a specified price and also required the departing doctor not to practice within a certain area of the practice.

Employers know they often have the upper hand when it comes to employment contracts. They create the terms of the contract and employees usually agree to them without any objection, often failing to even read the document. As an employee in New Jersey, you have the right to negotiate parts of an employment contract. Always be sure to read and have your employment contract reviewed by a knowledgeable employment law attorney before you sign it. It can make all the difference.

If you have any questions regarding employment contracts, please contact Fredrick P. Niemann, an experienced NJ Employment Attorney today at 855-376-5291 or email him at fniemann@hnlawfirm.com. He would be happy to discuss your matter with you.

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Picking the Right Executor as your Estate Fiduciary Under your Last Will and Testament?

October 21st, 2011

By Fredrick P. Niemann, Esq., a NJ Will Attorney

When creating your last will and testament as part of estate planning, an important decision you will have to make is who to name as your executor fiduciary. By fiduciary, I mean your Executor under your Last Will and Testament.  An estate fiduciary is a fancy legal term for the person who will take care of your assets and Estate if you are unable to do it yourself, such as the 1) executor of an estate, 2) the trustee of a trust, or 3) an attorney-in-fact under a power of attorney. Your first reaction might be to name one of your children as a fiduciary, but if you want to avoid conflict among your children, this might not be the best option.

When naming a fiduciary, be confident you can rely upon the individual.  This is why people often name family members as fiduciaries. However problems can arise when a parent with two or more children names one child as a fiduciary. According to Fredrick P. Niemann, an attorney from Freehold, New Jersey, who spoke on the issue of family harmony at a recent will seminar, a child is often not the best fiduciary for several reasons:

• It is hard for a child to be completely objective.
• Children often disagree over many things, including how long the estate should take to complete, the selling of assets, and  the division of personal property.
• Children often don’t communicate with each other well.
• Unresolved lifetime rivalries.

An alternative is to hire a professional fiduciary or executor. A professional fiduciary can be a bank, investment firm with estate administration experience, a certified public accountant, or a trust company. A professional fiduciary will charge a fee, but the fee is established ahead of time. In addition, because a professional is experienced in managing money and property, your assets are more likely to increase under this person’s or institution’s guidance.

To ensure that your family remains partially involved and has some input, you can include a provision that allows one or more family members to discharge the fiduciary if they feel the professional is not doing a good job. This will allow your family to make sure the fiduciary is performing properly without having the burden of acting as fiduciary.

For further information and advice in any estate planning matter or by the use of a will, do not hesitate to contact me toll-free at (888) 800-7442, or e-mail me at fniemann@hnlawfirm.com.  We can meet to discuss your questions and issues.  For further information, go to http://www.youtube.com/user/NJElderLawCenter#p/search/0/XfXdZF-5snk to learn more.

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Using a Special Needs Trust to Protect A Personal Injury Settlement and Public Benefits

October 21st, 2011

By Fredrick P. Niemann, Esq., NJ Special Needs Trust Lawyer

Personal injury attorneys and their clients should avoid receiving payment from a defendant or the defendant’s insurer into the attorney’s trust account for any funds that are intended to be placed into a special needs trust.  Payment of funds to the plaintiff’s personal injury attorney constitutes “constructive receipt” by the person with a disability.  Therefore, checks from the defendant should be made payable directly to the trustee of the special needs trust.  Constructive receipt by the beneficiary can cause a loss of public benefits because the SSI income and resource rules have been violated.
 
When there is a lump sum settlement and the defendant insists on paying the plaintiff’s attorney quickly, the court may order that the monies be held in the attorney’s trust account subject to conditions, such as satisfaction of Medicare and Medicaid liens.  This should avoid a constructive receipt argument by SSA.  The trial attorney then makes the plaintiff’s check payable to the trustee of the special needs trust at such time as all of the conditions imposed by the court order are satisfied.
 
There are two unpleasant consequences that can flow from constructive receipt:

• Public benefits eligibility.  If you’re an SSI recipient and receive income during a month, it may result in an overpayment.  However, if the income is from a personal injury, inheritance or equitable distribution, then an argument can be made that the income is infrequent and irregular and should not be counted.  If the funds are still available on the first day of the following month, they become a resource.  Not all assets are resources.  A resource is defined as cash and any other personal property, that an individual owns; has a right, authority, or power to convert to cash (if not already cash); and is not legally restricted from using for his support and maintenance.  If settlement funds are held in a lawyer’s trust account, they are constructively received by the individual, but if there is a restriction on the use of those funds not related to the support and maintenance of the individual, they will not be counted as a resource.  Therefore, legal restrictions to making the funds available for the individual’s support and maintenance will not be considered a countable resource available to the SSI recipient.  Examples of what might constitute a legal restriction include the following:

• Allocation among claimants as yet to be determined.  

• Uncertainty of liens, their amounts and their priority.
• Uncertainty of attorneys’ fees and costs of the case to be paid.

• The need to have a guardian of the estate or a conservator appointed, by the Court.

• The settlement agreement is contingent upon court approval, which is typically the case where there is a minor or incompetent adult.

• Taxation.  From a tax standpoint, the concept of constructive receipt analyses the timing of taxable income and preventing taxpayers from manipulating which tax years they will report income.  Generally, gross income is included for the taxable year in which it is received by the taxpayer, unless under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different period.”  Therefore, if a structured settlement is constructively received, the income generated on the entire value of the settlement will be currently taxed.  Constructive receipt is defined as “income, although not actually reduced to a taxpayer’s possession, is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year, if notice of intention to withdraw had been given.  However, income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.”
 
What constitutes a substantial limitation is decided on a case-by-case basis.  Taxable receipt occurs when funds are received by the payee’s agent (i.e., plaintiff’s attorney). 
 
In another case it was held that funds held in escrow pending a court order are subject to substantial limitations.

If you have questions about protecting eligibility for government benefits when filing a personal injury lawsuit or near the end when settlement or verdict is a reality, contact Fredrick P. Niemann at 732-863-9900 or toll-free at 888-800-7442.  He’s happy to be of assistance.

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Using IRA’s in your New Jersey Estate Planning

October 21st, 2011

By Fredrick P. Niemann, Esq., a New Jersey Estate Planning Attorney

An individual Retirement Account (IRA) is a well known and utilized investment for retirement, but needs to be understood when doing estate planning.  IRA’s can be used to provide for heirs either directly or through a trust.  Understanding to what extent your heirs will benefit from the IRA and avoiding unnecessary taxes depends on proper planning.

What is an IRA?  An IRA is a form of a personal saving plan that is designed to set aside money for your retirement in a tax deferred and tax savings manner.  The advantage of IRA’s is that you may be able to deduct some or all of your contributions to an IRA from your income taxes and also be eligible for a tax credit equal to a percentage of your contribution.  Earnings withdrawn from a traditional IRA generally are not taxed until distributed to you.  At age 70 ½ you have to start taking distributions from a traditional IRA.  Earnings in a Roth IRA are not taxed nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible.  Any amount remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.

Here is an important thing to remember:  With an IRA you must name a beneficiary.  While a spouse is usually the logical choice for a beneficiary, you should be sure to name contingent beneficiaries as well.  If you and your spouse died at the same time and there was no contingent beneficiary, then the IRA would go to your estate and be subject to probate (the legal process of administering the estate of a deceased person).  When a spouse inherits an IRA, he or she can roll it over into his or her own IRA.  When a non-spouse inherits an IRA, the heir will need to start taking distributions within a year after the IRA owner dies.  See my recent posts on the importance of beneficiary designations found.

Extending the timing and payout of your IRA if you don’t need the funds in your IRA for retirement and want to use them to provide for your beneficiaries instead, you may be interested in “stretching out” your IRA.  To do this, when you reach 70 ½, take only the required minimum distributions, leaving more assets in your IRA.  When you die, your beneficiary can also stretch distributions out over his or her lifetime and then designate a second-generation beneficiary.  It makes sense to name a young beneficiary because the younger the beneficiary, the smaller each distribution must be, which gives the funds in the IRA extra tax-deferred years to grow. 

Trusts as Beneficiaries – In some cases, it may make sense to name a trust as a beneficiary.  This is particularly true if you have minor children, children with special needs, or a beneficiary with poor spending habits.  But the trust must be properly drafted to avoid negative tax consequences.  If the trust is a “see-through” trust or “conduit” trust, then the distributions from the IRA to the trust after the participant’s death can be stretched out over the life expectancy of the oldest trust beneficiary.  If you are planning to leave your IRA to a trust, you must consult with your attorney to ensure that the trust is properly drafted and the beneficiary is properly named.
An IRA can be a valuable part of a New Jersey estate plan, but the rules can be complicated. 

If you have any questions regarding IRA’s in estate planning, please contact Fredrick P. Niemann, Esq. today. He can be reached toll free at 888-800-7442 or by email at fneimann@hnlawfirm.com. Mr. Niemann will be more than happy to meet with you to answer any questions you may have.

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I’m Widowed Yet My Husband is Still Alive – a Spouse’s Life Dealing with Huntington’s Disease

October 13th, 2011

By Fredrick P. Niemann, Esq., a NJ Elder Care Attorney

Often I have listened to a client’s moving story about his or her service as primary caregiver to their sick spouse.  Each speaks with both passion and pain, describing their caregiving as “the loneliest time of my life.”  For this reason, each wants to speak out and be an encouragement to others who might be on the same road.

Managing spouses whose husband and/or wife have been diagnosed with Huntington’s Disease, a long-term illness that strikes at an average age of 39 is hard.  To paraphrase their words, “My husband/wife had the diagnosis, but the disease took them away from me.  I no longer had a lover, a soul mate, someone who could really share with me.  Our days as a couple were at an end.”  During this time of increasing illness, their spouse’s were not able to hold them, kiss them, or care for them for many years of the disease.
Each shared that during this illness, they had to sacrifice their own feelings for the benefit of their spouse.  An area of greatest hurt was the abandonment of their spouse by their own extended family.  Their burden could have been lighter if family and friends had stayed more involved.  Each related that when they called their husband’s or wife’s brothers or sisters and reminded them of how important it was to them to be able to see them from time to time; many responded with, “I just can’t stand to see him/her that way.”
“I was a widow with a living spouse,” each stated with sadness.

It seems to me that we could all do a much better job in helping others carry the load of long term illness.  We need to be more aware of what family members are going through during what may well be the loneliest and most difficult time of their lives.  We need to come alongside them and provide sympathy and support.

On a more positive note, I learned of another man who has been diagnosed with Huntington’s disease and whose male buddies have rallied around him.  They have intentionally gone out of their way to work together to take this man out of the house and to sporting events with them.  They have specifically set up time to talk with his wife to make sure they understand his care needs.  They work together to make it possible for him to go on their annual fishing trip.  These men are an extraordinary example of what it means to truly be a friend.

I hope that each one of us would choose to follow this model of true friendship if someone we know and love develops a long term illness.

For further information and advice in any elder care matter, do not hesitate to contact me toll-free at 888-800-7442, or e-mail me at fniemann@hnlawfirm.com.

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A Buy-Sell Agreement Should Always Include a Clause Dealing With Sudden Unexpected Departures

October 13th, 2011

By Fredrick P. Niemann, Esq., a NJ Shareholder Agreement Attorney
Every business should have some sort of buy-sell agreement, regardless of its size. However, buy-sell agreements are extremely crucial in a smaller business with few owners. While owners of small businesses often start out as friends, unexpected events occur, leading to disagreements among owners and often causing the business to suffer. Fortunately, many businesses owners are smart enough to sign buy-sell agreements when they enter the business. These agreements dictate the terms of the sale of a departing member’s ownership, often dictating who it can be sold to and what price it will be sold for. This helps avoid or resolve potential problems at a time when emotions and anxiety is high and the disagreements is likely to result as one owner seeks to leave the business.

Many owners often forget to include a key component in a shareholder agreement: a clause dealing with unexpected departures. Unexpected departures occur due to a number of reasons. Death, incapacity, disinterest, financial distress, divorce, or loss of a business license is only some of the reasons why an owner may be forced to leave a business. Whatever the reason may be, it is important that owners place a clause in their buy-sell agreement dealing with the unexpected departure of an owner.

The details of a buy-sell agreement addressing an unexpected departure are completely up to you. Owners of a business often place provisions that allow for the remaining member(s) of the business to buy the deceased or departing owner’s share of the business at a predetermined price.  This gives the remaining owner(s) the option of keeping out family members of the deceased owner from joining the business. Another provision is one that restricts the shares of an owner to a spouse through a divorce.  Similar to the provisions relating to a deceased member, this allows the remaining member(s) to restrict who owns the business with them. Finally, another common provision requires the sale of a departing owner’s shares to the remaining owners if the departing owner is convicted of a crime or loses their professional license. This ensures the remaining owners that the integrity of the business will be kept up and they will not be forced to work with someone they do not want to.

Buy-sell agreements are key to all businesses, especially small businesses. A properly crafted agreement can help ensure the success of your business even upon the departure of a co-owner. Please contact Fredrick P. Niemann, Esq., a qualified New Jersey Business Attorney today if you have any questions. He can be reached toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com.  For further information, go tohttp://www.youtube.com/user/NJBusinessLaw#p/search/0/ZWx2P0MQWwA to learn more.

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Have you selected the Right Person as your Fiduciary Under your Power of Attorney?

October 13th, 2011

By Fredrick P. Niemann, Esq., a NJ Power of Attorney Lawyer

When creating an estate plan and creating a power of attorney, an important decision you will have is who to name as your fiduciary. By fiduciary, I mean your  power of attorney. A fiduciary is a fancy legal term for the person who will take care of your assets if you are unable to do it yourself, such as an attorney-in-fact under a power of attorney. Your first reaction might be to name one of your children as a fiduciary, but if you want to avoid conflict among your children, this might not be the best option.

When naming a fiduciary, be confident you can trust the individual.  This is why people often name family members as fiduciaries. However problems can arise when a parent with two or more children names one child as a fiduciary. According to Fredrick P. Niemann, an attorney from Freehold, New Jersey, who spoke on the issue of family harmony at a recent estate planning seminar on powers of attorney, a child is often not the best fiduciary for several reasons:

• It is hard for a child to be completely objective.
• Children often disagree over many things.
• Children often don’t communicate with each other well.
• Unresolved lifetime rivalries.

An alternative is to hire a professional power of attorney. A professional fiduciary can be a bank, investment firm with trust administration, a certified public accountant, or a trust company. A professional fiduciary will charge a fee, but the fee is established ahead of time. In addition, because a professional is experienced in managing money and property, your assets are more likely to increase under this person’s or institution’s guidance.

To ensure that your family remains partially involved and has some input, you can include a provision that allows one or more family members to discharge the fiduciary if they feel the professional is not doing a good job. This will allow your family to make sure the fiduciary is performing properly without having the burden of acting as fiduciary.

For further information and advice with a power of attorney, do not hesitate to contact me toll-free at (888) 800-7442, or e-mail me at fniemann@hnlawfirm.com.  We can meet to discuss your questions and issues.

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